CHAPTER 13. MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

13.1 INTRODUCTION ......................................................................................................... 13-1 13.2 METHODOLOGY ........................................................................................................ 13-1 13.2.1 Phase I: Industry Profile.................................................................................... 13-2 13.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide........................... 13-2 13.2.2.1 Industry Cash-Flow Analysis............................................................... 13-2 13.2.2.2 Interview Guide ................................................................................... 13-3 13.2.3 Phase III: Sub-Group Analysis ......................................................................... 13-3 13.2.3.1 Manufacturer Interviews...................................................................... 13-3 13.2.3.2 Revised Industry Cash-Flow Analysis................................................. 13-4 13.2.3.3 Manufacturer Sub-Group Analysis...................................................... 13-4 13.2.3.4 Small-Business Manufacturer Sub-Group ........................................... 13-4 13.2.3.5 Manufacturing Capacity Impact .......................................................... 13-5 13.2.3.6 Employment Impact............................................................................. 13-5 13.2.3.7 Cumulative Regulatory Burden ........................................................... 13-5 13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES.......................................... 13-5 13.3.1 Equipment Class Separation .............................................................................. 13-6 13.3.2 Reduced Cleaning Performance and Consumer Dissatisfaction for Top-Loading Washers.............................................................................................................. 13-6 13.3.3 Test Procedure Implications .............................................................................. 13-6 13.4 GRIM INPUTS AND ASSUMPTIONS........................................................................ 13-7 13.4.1 Overview of the GRIM ...................................................................................... 13-7 13.4.2 Sources for GRIM Inputs................................................................................... 13-7 13.4.2.1 Corporate Annual Reports ................................................................... 13-8 13.4.2.2 Standard & Poor Credit Ratings .......................................................... 13-8 13.4.2.3 Dun & Bradstreet Reports.................................................................... 13-8 13.4.2.4 Shipment Model................................................................................... 13-8 13.4.2.5 Engineering Analysis...........................................................................13-9 13.4.2.6 Manufacturer Interviews...................................................................... 13-9 13.4.3 Financial Parameters.......................................................................................... 13-9 13.4.4 Corporate Discount Rate.................................................................................. 13-10 13.4.5 Trial Standard Levels....................................................................................... 13-12 13.4.6 NES-Shipments Forecast ................................................................................. 13-12 13.4.6.1 Base-Case Shipments Forecast .......................................................... 13-12 13.4.6.2 Standards-Case Shipments Forecast .................................................. 13-13 13.4.6.3 Price Elasticity of Demand Shipments Scenario ............................... 13-14 13.4.6.4 Economic Growth Shipments Scenario ............................................. 13-14 13.4.7 Production Costs .............................................................................................. 13-14 13.4.8 Conversion Costs .............................................................................................13-15 13.4.8.1 Capital Conversion Costs...................................................................13-15 13.4.8.2 Equipment Conversion Costs............................................................. 13-16 13.4.9 Markups ........................................................................................................... 13-17

13-i13.4.10 Federal Production Tax Credits..................................................................13-17 13.5 COMMERCIAL CLOTHES WASHER INDUSTRY FINANCIAL IMPACTS ....... 13-17 13.5.1 Impacts on Industry Net Present Value ........................................................... 13-18 13.5.2 Impacts on Annual Cash Flow......................................................................... 13-20 13.6 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER MANUFACTURER .................................................................................................... 13-24 13.6.1 Introduction......................................................................................................13-24 13.6.2 Low-Volume Manufacturer Competitiveness.................................................. 13-24 13.6.3 Effects of a Transition to Front-Loading Platforms......................................... 13-25 13.6.4 Fixed Cost Impacts on a Low-Volume Manufacturer ..................................... 13-26 13.6.5 Financial Position of the LVM ........................................................................ 13-29 13.6.6 Additional Impacts on the Low-Volume Manufacturer................................... 13-30 13.6.7 Consequences of Higher Energy Conservation Standards on the LVM..........13-30 13.7 OTHER IMPACTS...................................................................................................... 13-31 13.7.1 Employment..................................................................................................... 13-31 13.7.1.1 Methodology...................................................................................... 13-31 13.7.1.2 Results................................................................................................13-33 13.7.2 Production Capacity......................................................................................... 13-36 13.7.3 Cumulative Regulatory Burden ....................................................................... 13-37 13.7.3.1 Additional Federal Energy Conservation Standards.......................... 13-37 13.7.3.2 State Energy and Water Conservation Standards .............................. 13-39 13.7.3.3 International Energy Conservation Standards ................................... 13-40 13.7.3.4 International Test Procedures ............................................................ 13-41 13.8 CONCLUSIONS.......................................................................................................... 13-41

LIST OF TABLES

Table 13.4.1 GRIM Financial Parameters Based on 1999–2006 Weighted Company Financial Data ..................................................................................................................... 13-9 Table 13.4.2 Cost of Equity Calculation.................................................................................13-11 Table 13.4.3 Cost of Debt Calculation.................................................................................... 13-11 Table 13.4.4 Commercial Clothes Washer Baseline Efficiency Levels and TSLs................. 13-12 Table 13.4.5 Total NES-Shipments Forecast in 2013............................................................. 13-12 Table 13.4.6 Base-Case Distribution of Efficiencies for Top-Loading Commercial Clothes Washers in 2013 Estimated in the NES............................................................. 13-13 Table 13.4.7 Base-Case Distribution of Efficiencies for Front-Loading Commercial Clothes Washers in 2013 Estimated in the NES............................................................. 13-13 Table 13.4.8 Distribution of Top-Loading Commercial Clothes Washer Shipments in the Standards Case in 2013 – Roll-Up Scenario ..................................................... 13-13 Table 13.4.9 Distribution of Front-Loading Commercial Clothes Washer Shipments in the Standards Case in 2013 – Roll-Up Scenario ..................................................... 13-14 Table 13.4.10 Base-Case Production Costs (2008$) used in the GRIM for Top-Loading Commercial Clothes Washers ........................................................................... 13-15 Table 13.4.11 Base-Case Production Costs (2008$) used in the GRIM for Front-Loading Commercial Clothes Washers ........................................................................... 13-15

13-iiTable 13.4.12 Capital Conversion Costs for Commercial Clothes Washers by TSL............. 13-16 Table 13.5.1 	Changes in Industry Net Present Value for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments)......................................................................................................... 13-18 Table 13.5.2 	Changes in Industry Net Present Value for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) .......................................................................................... 13-18 Table 13.5.3 	Changes in Industry Net Present Value for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments)......................................................................................................... 13-19 Table 13.5.4 	Changes in Industry Net Present Value for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) .......................................................................................... 13-19 Table 13.5.5 	Changes in Industry Net Present Value for Top-Loading and Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments)....................................................................................... 13-19 Table 13.5.6 	Changes in Industry Net Present Value for Top-Loading and Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments)............................................................. 13-19 Table 13.6.1 DOE Estimate of LVM Clothes Washer Sales and Unit Shipments in 2006 .... 13-24 Table 13.6.2 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 100,000 units Per Year. ...................................................................................................13-26 Table 13.6.3 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 1,500,000 units Per Year. ...................................................................................................13-26 Table 13.6.4 Depreciation Lifetime Assumptions for a Low- and High-Volume Manufacturer .... ........................................................................................................................... 13-27 Table 13.6.5 Per Unit Depreciation Costs for a Low- and High-Volume Manufacturer........ 13-27 Table 13.6.6 Per-Unit Impacts of a $10 Million R&D Expense at Various Equipment Lifetimes ........................................................................................................................... 13-28 Table 13.6.7 Total Per-Unit Profit for an LVM after Depreciation and R&D Disadvantage. 13-28 Table 13.6.8 Comparison of the LVM’s 2008 Financials with DOE’s Green-Field Assumptions ........................................................................................................................... 13-29 Table 13.7.1 Commercial Clothes Washer Industry Estimated Employment Impacts in 2013 ....... ........................................................................................................................... 13-33 Table 13.7.2 Other DOE and Federal Actions Affecting the CCW Industry .......................... 13-38 Table 13.7.3 State Commercial Clothes Washer Regulations Similar to EPACT 2005......... 13-39 Table 13.7.4 California State Energy and Water Conservation Standards for Commercial Clothes Washers ................................................................................................ 13-39 Table 13.7.5 California Water Conservation Standards for Residential Clothes Washers..... 13-40

LIST OF FIGURES

Figure 13.4.1 Using the GRIM to Calculate Cash Flow........................................................... 13-7 Figure 13.5.1 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments) 13-20

13-iiiFigure 13.5.2 	Annual Net Cash Flows for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) ................................................................................................................ .......................................................................................................................... 13-21 Figure 13.5.3 	Annual Net Cash Flows for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments) 13-21 Figure 13.5.4 	Annual Net Cash Flows for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) ................................................................................................................ .......................................................................................................................... 13-22 Figure 13.5.5 	Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments) ....................................................................................................... 13-22 Figure 13.5.6 	Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments)......................................................................................... 13-23 Figure 13.7.1 Commercial Clothes Washer Industry Cost Structure....................................... 13-32 Figure 13.7.2 Total Commercial Clothes Washer Industry Domestic Employment by Year . 13-34

13-ivCHAPTER 13. MANUFACTURER IMPACT ANALYSIS

13.1 INTRODUCTION

In determining whether a standard is economically justified, the U.S Department of Energy (DOE) is required to consider “the economic impact of the standard on the manufacturers and on the consumers of the products subject to such a standard.” (42 U.S.C. 6313(a)(6)(B)(i)) The law also calls for an assessment of the im pact of any lessening of competition as determined in writing by the Attorney General. Id. DOE conducted a manufacturer impact analysis (MIA) to estimate the financial impact of higher energy conservation standards on manufacturers of commercial clothes washers (CCW), and to assess the impact of such standards on employment and manufacturing capacity. The MIA has both quantitative and qualitative aspects.

The quantitative part of the MIA primarily relies on the Government Regulatory Impact Models (GRIM), an industry-cash-flow model adapted for this rulemaking. The GRIM inputs include information on industry cost structure, shipments, and pricing strategies. The GRIM’s key output is the industry net present value (INPV). The model estimates the financial impact of higher energy conservation standards by comparing changes in INPV between a base case and the various trial standard levels (TSLs). The qualitative part of the MIA addresses factors such as equipment characteristics, characteristics of particular manufacturers, and market and equipment trends. It also assesses the impact of standards on subgroups of manufacturers.

13.2 METHODOLOGY

DOE conducted the MIA in three phases. Phase I, “Industry Profile,” consisted of preparing an industry characterization for the CCW industry, including data on market share, sales volumes and trends, pricing, employment, and financial structure. Phase II, “Industry Cash Flow,” focused on the CCW industry individually.

Using publicly available information developed in Phase I, DOE adapted the GRIM’s generic structure to facilitate analysis of amended standards for CCWs.

In Phase III, “Sub-Group Impact Analysis,” DOE interviewed manufacturers representing approximately 100 percent of CCW sales. This group included a range of manufacturers with varying capabilities to provide a representative cross-section of the industries. During these interviews, DOE discussed financial topics specific to each manufacturer and obtained each manufacturer’s view of the industry as a whole. The interviews provided valuable information that DOE used to evaluate the impacts of amended energy conservation standards on manufacturers’ cash flows, investment requirements, and employment levels. The following subsections describe more specifically the steps DOE took in developing the information on which it based the MIA.

13-113.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE prepared a profile of the CCW industries that built upon the market and technology assessment prepared for this rulemaking (see chapter 3 of this Technical Support Document (TSD)). Before initiating the detailed impact studies, DOE collected qualitative and quantitative financial information and past and present market data. This included estimated market shares, corporate operating ratios, wages, employment, and production cost ratios for several home appliance manufacturers. The industry profile included a top-down cost analysis of CCW manufacturers that DOE used to derive cost and preliminary financial inputs for the GRIMs ( e.g ., revenues; material; labor; overhead; depreciation; selling, general and administrative expenses (SG&A); and research and development (R&D) expenses).

DOE also used public information to further calibrate its initial characterization of the CCW industry, including U.S. Securities and Exchange Commission (SEC) 10–K and 10–Q reports, Standard & Poor’s (S&P) stock reports, corporate annual reports, and U.S. Census Bureau’s 2006 Annual Survey of Manufactures ( 2006 ASM ). In addition, DOE relied on information from its engineering analysis, life-cycle cost analysis, and analysis of markups to determine product prices to characterize these industries. DOE also interviewed three manufacturers of CCWs that collectively represent approximately 100 percent of U.S. CCW sales. These preliminary interviews were designed to solicit key concerns, industry structure, and other data points for the subsequent analysis.

13.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide

In Phase II, DOE performed industry cash-flow analyses and prepared written guidelines for interviewing manufacturers. Phase II focused on the financial impacts of amended standards on the CCW industry. Amended standards can affect manufacturers in three distinct ways: (1) require additional investment, (2) raise production costs, and (3) impact revenues through higher prices and possibly lower shipments. The analytical tool DOE uses for calculating the financial impacts of amended energy conservation standards on manufacturers is the GRIM. DOE performed a cash flow analysis for the CCW industry to quantify these impacts.

13.2.2.1 Industry Cash-Flow Analysis

The GRIM uses several factors to determine a series of annual cash flows for the year standards become effective and several years after implementation. These factors include annual expected revenues; costs of sales; SG&A costs; taxes; and capital expenditures related to new standards. Inputs to the GRIM include manufacturing costs, shipments forecasts, and prices developed in other analyses. DOE derived the manufacturing costs from the engineering analysis and information provided by the industry, and estimated typical manufacturer markups from public financial reports and interviews with manufacturers. DOE’s shipments analysis, presented in chapter 10 of this TSD, provided the basis for the shipments projection under each TSL in the GRIM. The financial parameters were developed using publicly available data of manufacturers of equipment covered by this rulemaking. These parameters were revised with information submitted confidentially during manufacturer interviews. The results of the GRIM are compared against base case projections equivalent to current Federal energy conservation standard levels for CCWs. The financial impact of amended energy conservation standards is

13-2the difference between the baseline and the standards-impacted sets of discounted annual cash flows.

13.2.2.2 Interview Guide

During Phase III of the MIA, DOE conducted interviews with CCW manufacturers to gather information on the effects of amended energy conservation standards on revenues and finances, direct employment, capital assets, and on industry competitiveness. Prior to the interviews, DOE distributed a standard interview guide that provided a starting point to identify relevant issues and help identify the impacts of amended energy conservation standards on individual manufacturers or sub-groups of manufacturers. The interview guide covered current organizational characteristics, industry infrastructure, manufacturer cash-flow analysis, a competitive impacts assessment, an employment impacts assessment, and a manufacturing capacity impacts assessment.

13.2.3 Phase III: Sub-Group Analysis

During the course of the MIA, DOE interviewed manufacturers representing approximately 100 percent of CCWs sales. Many of these same companies also participated in interviews for the engineering analysis. However, the MIA interviews broadened the discussion from primarily technology-related issues to include business-related topics. One objective was to obtain feedback from industry on the approaches used in the GRIM and to isolate key issues and concerns. During interviews, DOE defined two appliance manufacturer sub-groups that could be impacted by the energy conservation standards. Due to one manufacturer’s focus on the laundry business, its lower total shipment volume, and lower revenues compared to its competitors, this manufacturer was identified as a “Low-Volume Manufacturer” (LVM). The following sections summarize the methodology and findings of this assessment.

13.2.3.1 Manufacturer Interviews

The information gathered in Phase I and the cash-flow analysis performed in Phase II are supplemented with information gathered during interviews with manufacturers during Phase III. The interview process has a key role in the manufacturer impact analyses, since it provides an opportunity for interested parties to express their views privately on important issues, allowing confidential or sensitive information to be considered in the rulemaking process.

DOE used these interviews to tailor the GRIM to incorporate unique financial characteristics for each sub-group. DOE contacted companies from its database of manufacturers, which provided a representation of the CCW industry. Interviews were scheduled well in advance in order to provide every opportunity for key individuals to be available for comment. Although a written response to the questionnaire was acceptable, DOE preferred an interactive interview process because it helped clarify responses and provide the opportunity to identify additional issues.

DOE conducted detailed interviews with all manufacturers that agreed to participate to gain insight into the range of potential impacts and how this range varies with each TSL. The resulting qualitative and quantitative information are valuable inputs for the GRIMs.

13-313.2.3.2 Revised Industry Cash-Flow Analysis

In Phase II of the MIA, DOE provided manufacturers with preliminary GRIM input financial figures for review and evaluation. During the interviews, DOE requested comment and suggestions regarding the values selected for the parameters. Upon completion of the interviews, DOE revised its industry cash flow models based on the feedback provided through the interviews. More information on how DOE calculated the parameters for the industry GRIMs is found in section 13.4.3 of this chapter.

13.2.3.3 Manufacturer Sub-Group Analysis

Using average cost assumptions to develop an industry cash flow estimate is not adequate for assessing differential impacts among sub-groups of manufacturers. Low-volume manufacturers, or manufacturers exhibiting a cost structure that differs significantly from the industry average, could be more negatively affected. Ideally, DOE would consider the impact on every manufacturer individually; however, it typically uses the results of the industry characterization to group manufacturers exhibiting similar characteristics. During the interview process, DOE discussed the potential sub-groups and sub-group members that have been identified for the analysis. DOE looked to the manufacturers and other interested parties to suggest what sub-groups or characteristics are the most appropriate for the analysis.

13.2.3.4 Small-Business Manufacturer Sub-Group

DOE used the small business size standards published on August, 22 2008, as amended, by the Small Business Administration (SBA) to determine whether any small entities would be required to comply with the rule. 13 CFR Part 121. The size standards are listed by North American Industry Classification System (NAICS) code and industry description. DOE used the SBA limits and NAICS classifications to determine if any small businesses would be affected by this rulemaking. The SBA bases its small business definition on the total number of employees for a business, its subsidiaries, and its parent companies. Whenever an aggregated business entity has less than the listed number of employees, it is considered a small business. CCWs are classified under NAICS 333312, for which an entity is considered a small business if the total employment is less than 500. Because most CCW manufacturers also manufacture residential laundry equipment, DOE also determined if any CCW manufacturer was considered a small business for its residential products. Residential washers are classified under NAICS 335224, for which a manufacturer is considered a small business if it has fewer than 1,000 employees.

DOE surveyed the Association of Home Appliance Manufacturers (AHAM) member directory to identify manufacturers of CCWs. DOE also asked interested parties and AHAM representatives within the CCW industry if they were aware of any other small business manufacturers. DOE then consulted publicly available data, purchased company reports from vendors including Dun & Bradstreet (D&B), and contacted manufacturers, where needed, to determine if they meet the SBA’s definition of a small business manufacturing facility and have their manufacturing facilities located within the United States.

DOE could not identify any small CCW manufacturers. However, one category-focused manufacturer of laundry equipment has significant CCW market share, features much smaller

13-4revenues than its diversified competitors, but is not a small business per the definition of the SBA for either residential or commercial laundry equipment. DOE subsequently assigned this manufacturer its own sub-category, the LVM, to evaluate the disproportionate impacts of any CCW rulemaking on this manufacturer. The impacts on this sub-group are found in section 13.6.

13.2.3.5 Manufacturing Capacity Impact

One of the significant outcomes of amended energy conservation standards could be the consequential obsolescence of existing manufacturing assets, including tooling and investment. The manufacturer interview guide has a series of questions to help identify impacts on manufacturing capacity, specifically capacity utilization and plant location decisions in the United States and North America with and without a standard; the ability of manufacturers to upgrade or remodel existing facilities to accommodate the new requirements due to an amended energy conservation standard; the nature and value of stranded assets, if any; and estimates for any one-time restructuring and other charges, where applicable.

13.2.3.6 Employment Impact

The impact of amended energy conservation standards on employment is an important consideration in the rulemaking process. To assess how domestic employment patterns might be affected, the interviews explored current employment trends in the CCW industry. In addition, the interviews solicited manufactures’ views on changes in employment patterns that may result from more stringent standard levels. The employment impacts section of the interview guide focused on current employment levels associated with manufacturers at each of their production facilities, expected future employment levels with and without amended energy conservation standards, and differences in workforce skills and issues related to the retraining of employees.

13.2.3.7 Cumulative Regulatory Burden

DOE recognizes and seeks to mitigate the overlapping effects on manufacturers due to amended energy conservation standards and other regulatory actions affecting the sameequipment. DOE analyzed and considered the impact on manufacturers of multiple, productspecific regulatory actions. Based on its own research and discussions with manufacturers, DOE identified several regulations relevant to CCW manufacturers including: Federal energy conservation standards for other products and equipment manufactured by CCW manufacturers, and other environmental regulations.

13.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES

Each MIA starts by asking: “What are the key issues for your company regarding the energy conservation standard rulemaking?” This open question initiates dialogue with the manufacturers, enabling them to identify the issues that they feel DOE should explore and discuss further during the interview. The following section describes key issues mentioned for CCW manufacturers. Manufacturers indicated that, for the most part, the risks associated with these issues increase with more stringent TSLs.

13-513.3.1 Equipment Class Separation

All interviewed manufacturers stated that the CCWs should be separated into two equipment classes: top-loading washers and front-loading washers. All manufacturers stated that the mode of access and the orientation of the wash basket inside the washer have unique utilities for end-users and therefore should be subject to separate energy conservation standards.

13.3.2 Reduced Cleaning Performance and Consumer Dissatisfaction for Top-Loading Washers

All manufacturers stated that the implementation of design options due to the conformance to energy conservation standards for top-loading CCW can potentially cause reduction in the cleaning performance and hence consumer dissatisfaction. All manufacturers stated that consumer satisfaction is of high priority and that disruptions can be detrimental to their market share.

All manufacturers stated that overloading the washers is common practice for consumers and that some technologies found in residential washers are inapplicable because of that. Another consideration is cycle length, which owners and end-users prefer to be as short as possible. a According to all manufacturers, cycle time is critical for both consumers and customers. For customers, the longer the cycle, the less time there is available for consumers to use washers, and the smaller number of consumers equate to decreased revenues for CCW owners. For consumers, the longer the cycle time, the less practical or desirable it is to use the machines.

13.3.3 Test Procedure Implications

One manufacturer stated that using the residential clothes washer test procedure for CCWs is inappropriate due to the very different usage patterns for residential versus commercial clothes washers. All manufacturers agree that most, if not all, CCW cycles will feature full loadsunlike the residential test procedure, which assumes a mix of load sizes. Features such as loadsize switches and adaptive fill that boost test re sults per the current test procedure (whichassumes variable load sizes) are thus unlikely to have any noticeable impact on actual CCW enduse energy consumption. While one manufacturer supported the continued use of the residential clothes washer test procedure in the absence of better data, another manufacturer expressed support for a test procedure change which would change the test procedure load size to be 100 percent full for every wash. According to multiple manufacturers, R&D dollars should be focused on improvements that represent concrete energy savings and not on technology that provide efficiency credits per the test procedure, but which provide no energy savings under actual operating conditions.

a In stock configuration, CCWs typi cally run on a 26-mi nute cycle. Higher effici ency residential clothes washers can run for more than an hour per cycle.

13-613.4 GRIM INPUTS AND ASSUMPTIONS

The GRIM serves as the main tool for assessing the impacts on the CCW industry due to amended energy conservation standards. DOE relies on several sources to obtain inputs for the GRIM. Data and assumptions from these sources are then fed into an accounting model that details the cash flow on a baseline basis, as well as calculates the impacts on manufacturers due to energy conservation standards.

13.4.1 Overview of the GRIM

The basic structure of the GRIM, illustrated in Figure 13.4.1, is an annual cash flow analysis that uses manufacturer prices, manufacturing costs, shipments, and industry financial information as inputs, and accepts a set of regulatory conditions such as changes in costs, investments, and shipments. The GRIM spreadsheet uses a number of inputs to arrive at a series of annual cash flows, beginning with the base year of the analysis, 2009, and continuing explicitly through 2043. The model calculates the INPV by summing the stream of annual discounted cash flows during this period. 1

Figure 13.4.1 Using the GRIM to Calculate Cash Flow

The GRIM projects cash flows using standard accounting principles and compares changes in INPV between the base-case scenario and the standards-case scenario, evaluating changes induced by the amended energy conservation standards. The difference in INPV between the base case and the standard case(s) represents the estimated financial impact of the amended energy conservation standards on manufacturers. Appendix 13B provides more technical details and user information for the GRIM.

13.4.2 Sources for GRIM Inputs

The GRIM uses several different sources for data inputs in determining the cash flows for the industry, including corporate annual reports, company profiles, U.S. Census data, credit ratings, the shipments model, the engineering analysis, and the manufacturer interviews.

13-713.4.2.1 Corporate Annual Reports

Corporate annual reports to the SEC (10-Ks) provided many of the financial inputs to the GRIM. 2 These reports exist for publicly held companies and are freely available to the general public. DOE developed average financial inputs to the GRIM by examining the annual SEC 10­ K reports filed by publicly traded manufacturers primarily engaged in appliance manufacturing and whose combined product range includes commercial clothes washers. Because these companies are typically diversified, producing a range of different appliances, an industry average was assumed by DOE to be representative for the manufacture of each type of appliance. Since these companies do not provide detailed information about their individual product lines, DOE had to use the financial information for the entire companies to represent the financial parameters in the CCW GRIM. In determining financial parameters for the industries, DOE weighted corporate financial information contained in the SEC 10-K reports by each company’s estimated market share to arrive at industry-weighted averages. DOE used corporate annual reports to derive the following GRIM inputs:

• Tax rate;

• Working capital;

• SG&A;

• R&D expenses;

• Depreciation;

• Capital expenditures; and

• Net property, plant, and equipment (PPE).

DOE also used information from company SEC 10-K reports to calibrate the GRIM’s operating profit margin against the industry-weighted average.

13.4.2.2 Standard & Poor Credit Ratings

S&P provides independent credit ratings, research, and financial information. S&P reports are available for a nominal fee. DOE relied on S&P reports to determine the industry’s average cost of debt for the cost of capital calculation.

13.4.2.3 Dun & Bradstreet Reports

D&B provides independent research regarding company cash flows, revenues, employees, and credit-worthiness. Besides conducting manufacturer interviews, DOE used D&B reports to profile several manufacturers which could potentially be small businesses.

13.4.2.4 Shipment Model

The GRIM used shipment projections derived from DOE’s shipments model in the national impact analysis (NIA). The model relied on historical shipments data for CCWs from AHAM for the analysis. Chapter 10 of this TSD describes the methodology and analytical model DOE used to forecast shipments.

13-813.4.2.5 Engineering Analysis

During the engineering analysis, DOE used data submitted from AHAM and manufacturer interviews to develop manufacturing cost estimates for CCWs. The analysis provided labor, materials, and overhead production costs which are representative of the CCW industry. The input costs used for CCWs were obtained from information submitted by AHAM and from manufacturer interviews.

13.4.2.6 Manufacturer Interviews

During the course of the MIA, DOE conducted interviews with manufacturers representing approximately 100 percent of the CCWs industry. During these discussions, DOE obtained information, which it used to determine and verify GRIM input assumptions for the industry. Key topics discussed during the interviews and reflected in the GRIM include:

� Capital conversion costs (one-time investments in property, plant, and equipment);

� Equipment conversion costs (one-time investments in research, product development, testing, and marketing);

� The portion of the capital conversion costs that companies use to replace stranded assets;

� Product cost structure: the portion of the manufacturer production costs related to materials, labor, overhead, and depreciation costs;

� Projected total shipment and shipment distribution mix; and

� Engineering analysis-estimated manufacturer production costs.

13.4.3 Financial Parameters

Table 13.4.1 provides financial parameters for three public companies engaged in manufacturing and selling CCWs. The values listed are averages over an 8-year period (1999– 2006).

Table 13.4.1 GRIM Financial Parameters Based on 1999

– 2006 Weighted Company Financial Data

Parameter IndustryWeighted Average Manufacturer

A B C

Tax Rate (% of Taxable Income) 33.9 6.6 34.1 34.5 Working Capital (% of Revenue) 2.9 9.6 5.6 2.0 SG&A (% of Revenue) 12.5 12.7 12.3 13.2 R&D (% of Revenues) 2.2 2.3 2.0 2.4 Depreciation (% of Revenues) 3.4 3.9 3.4 3.3 Capital Expenditures (% of Revenues) 3.5 1.9 3.4 3.6 Net Property, Plant , and Equipment (% of Revenues) 19.9 17.3 21.6 19.4

13-9These companies constitute a significant portion of the CCW industry. For other companies in the industry, public data is not available and was not used to calculate the parameters. The values used in the GRIMs, therefore, represent the industry’s weighted-average estimates using financial data from three publicly traded manufacturers. During manufacturer interviews, CCW manufacturers were asked to review the parameters listed in Table 13.4.1 and comment on how the parameters related to their specific industry. Where applicable, the parameters were then adjusted for the GRIM.

13.4.4 Corporate Discount Rate

DOE used the weighted-average cost of capital (WACC) for the industry as the discount rate to calculate the INPV. A company’s assets are financed by a combination of debt and equity. The WACC is the total cost of debt and equity weighted by their respective proportions in the capital structure of the industry. 1 DOE estimated the WACC for the CCW industry based on several representative companies, using the following formula:

WACC = After-Tax Cost of Debt x (Debt Ratio) + Cost of Equity x (Equity Ratio)

The cost of equity is the rate of return that equity investors (including, potentially, the company) expect to earn on a company’s stock. These expectations are reflected in the market price of the company’s stock. The capital asset pricing model (CAPM) provides one widely used means to estimate the cost of equity. According to the CAPM, the cost of equity (expected return) is:

Cost of Equity = Riskless Rate of Return + x Risk Premium

where:

Riskless rate of return is the rate of return on a “safe” benchmark investment, typically considered the short-term Treasury Bill (T-Bill) yield.

Risk premium is the difference between the expected return on stocks and the riskless rate.

Beta (�) is the correlation between the movement in the price of the stock and that of the broader market. In this case, Beta equals one if the stock is perfectly correlated with the S&P 500 market index. A Beta lower than one means the stock is less volatile than the market index.

DOE determined that the industry average cost of equity for the CCW industry is 17.9 percent as calculated in Table 13.4.2.

13-10Table 13.4.2 Cost of Equity Calculation Industry- Manufacturer Parameter Weighted Average (%) A B C
(1) Average Beta (2002–2006 year) 1.31 1.0* 1.77 1.17
(2) Yield on 10-Year T-Bill (1990

– 2006) 5.9

- - - (3) Market Risk Premium (1926

– 1999) 9.2

- - - Cost of Equity (2)+[(1)*(3)] 17.9

- - - Equity/Total Capital 37.2 23.7 -49.8 64.6

* Estimated Beta

Bond ratings are a tool to measure default risk and arrive at a cost of debt. Each bond rating is associated with a particular spread. One way of estimating a company’s cost of debt is to treat it as a spread (usually expressed in basis points) over the risk-free rate. DOE used this method to calculate the cost of debt for all three manufacturers. S&P had bond ratings for all three manufacturers, so DOE used these ratings to estimate the manufacturers’ cost of debt by adding the relevant spread to the risk-free rate.

In practice, investors use a variety of different maturity Treasury bonds to estimate the risk-free rate. DOE used a long-term Treasury bond return (10-year bond return) because it captures long-term inflation expectations and is less volatile than short-term rates. The risk free rate is estimated to be approximately 6 percent, which is the average 10-year Treasury bond return over the period of 1990 to 2006.

For the cost of debt, S&P’s Credit Services provided the average spread of corporate bonds for the three public manufacturers over the period 2002–2006. To this, DOE added the industry-weighted average spread to the average T-Bill yield over the same period. Since proceeds from debt issuance are tax deductible, DOE adjusted the gross cost of debt by the industry-average tax rate to determine the net cost of debt for the industry. Table 13.4.3 presents the derivation of the cost of debt. Also shown is the capital structure of the industry, i.e. the debt ratio (debt/total capital).

Table 13.4.3 Cost of Debt Calculation

Parameter IndustryWeighted Average (%) Manufacturer

A B C
S&P Bond Rating

-- B- BBB BBB (1) Yield on 10

- Year T-Bill (1990

– 2002) 5.9

- - -
(2) Gross Cost of Debt 8.2 13.9 8.1 8.1 (3) Tax Rate 34 6.6 34.1 34.5 Net Cost of Debt (2)x((1)­ (3)) 5.4

- - -
Debt/Total Capital 62.8 76.3 149.8 35.4

13-11DOE estimated CCW industry’s WACC to be approximately 10.1 percent. Subtracting an inflation rate of 2.9 percent between 1990 and 2006, the inflation adjusted WACC, and the corporate discount rate used in the GRIM, is 7.2 percent.

13.4.5 Trial Standard Levels

DOE developed TSLs for CCWs. Chapter 9 of the TSD describes the methodology DOE used to determine each TSL for the GRIM. The efficiency levels used in the GRIMs are presented in Table 13.4.4.

Table 13.4.4 Commercial Clothes Washer Baseline Efficiency Levels and TSLs Equipment Class Efficiency Metric Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Top-Loading MEF 1.26 1.42 1.42 1.60 1.60 1.60 WF 9.5 9.5 9.5 8.3 8.3 8.3 Front-Loading MEF 1.72 1.80 2.00 2.00 2.20 2.35 WF 8.0 7.5 5.5 5.5 5.1 4.4

13.4.6 NES-Shipments Forecast

The GRIM estimates manufacturer revenues based on total-unit-shipment forecasts and the distribution of these values by efficiency level. Changes in the efficiency mix at each standard level are a key driver of manufacturer finances. For this analysis, the GRIM used the national energy savings (NES) shipments forecasts from 2009 to 2043. Further explanation of approaches and calculations of total shipments can be found in the shipment analysis section of this TSD (chapter 10). Total shipments forecasted in the shipment analysis for all efficiency levels in 2013 are shown in Table 13.4.5 and are further detailed below.

Table 13.4.5 Total NES-Shipments Forecast in 2013 Equipment Class Total Industry Shipments* Top-Loading Commercial Clothes Washers 125,800 Front-Loading Commercial Clothes Washers 57,000

* Estimates rounded to the nearest hundred

13.4.6.1 Base-Case Shipments Forecast

As part of the shipment analysis, DOE estimated the shipment distribution by efficiency level. Table 13.4.6 through Table 13.4.7 show the base-case distributions of shipments by TSL estimated in the NES for various equipment classes for 2013.

13-12Table 13.4.6 Base-Case Distribution of Efficiencies for Top-Loading Commercial Clothes Washers in 2013 Estimated in the NES Shipments Efficiency Level (MEF/WF) Baseline 1.26/9.5 TSL 1, 2 1.42/9.5 TSL 3, 4, 5 1.60/8.5

Baseline 1.26/9.5 64.8% 33.8% 1.4%

Table 13.4.7 Base-Case Distribution of Efficiencies for Front-Loading Commercial Clothes Washers in 2013 Estimated in the NES Shipments Efficiency Level (MEF/WF) Baseline 1.72/8.0 TSL 1 1.80/7.5 TSL 2, 3 2.00/5.5 TSL 4 2.20/5.1 TSL 5 2.35/4.4

Baseline 1.72/8.0 3.5% 0.0% 73.7% 22.8% 0.0%

13.4.6.2 Standards-Case Shipments Forecast

To examine the effects of amended energy conservation standards on shipments, which affect the INPV, DOE used the base-case shipments described in the previous section. For the standards case, DOE assumed shipments at lower efficiencies were most likely to roll up into higher efficiency levels in response to an increase in energy conservation standards. This scenario assumes that demand for high efficiency equipment is a function of its price independent of the standard level. Table 13.4.8 through Table 13.4.9 show the distributions of efficiencies for the various equipment classes in 2013 under the roll-up scenario.

Table 13.4.8 Distribution of Top-Loading Commercial Clothes Washer Shipments in the Standards Case in 2013 – Roll-Up Scenario
TSL (MEF/WF) Baseline 1.26/9.5 TSL 1, 2 1.42/9.5 TSL 3, 4, 5 1.60/8.5 Baseline 1.26/9.5 64.8% 33.8% 1.4%

TSL 1 1.42/9.5 98.6% 1.4%

TSL 2 1.60/8.5 100.0%

13-13Table 13.4.9 Distribution of Front-Loading Commercial Clothes Washer Shipments in the Standards Case in 2013 – Roll-Up Scenario
TSL (MEF/WF) Baseline 1.72/8.0 TSL 1 1.80/7.5 TSL 2, 3 2.00/5.5 TSL 4 2.20/5.1 TSL 5 2.35/4.4 Baseline 1.72/8.0 TSL 1 1.80/7.5 TSL 2, 3 2.00/5.5 TSL 4 2.20/5.1 TSL 5 2.35/4.4 3.5% 0.0%

3.5% 73.7%

73.7%

77.2% 22.8

22.8%

22.8%

100.0% 0.0%

0.0%

0.0%

0.0%

100.0%

13.4.6.3 Price Elasticity of Demand Shipments Scenario

In the CCW GRIM, DOE modeled a shipment scenario that considers the impacts of changes in relative prices on consumer demand. As described in the purchase price, operating cost, and household income impacts sections found in the shipments model in chapter 10 of this TSD, the price elasticity of demand shipment scenario estimates how the combined effects of increases in purchase price and decreases in operating costs due to amended energy conservation standards affect shipments. DOE estimated the relative price elasticity of demand over time to determine how shipments would likely change after a standard sets a higher initial purchase price and lower operating costs. For shipments under the “price elasticity scenario,” the effects from the increase in purchase prices offset the effects from decreased operating costs, resulting in a net decrease in shipments. See chapter 10 for more details on the shipment scenarios.

13.4.6.4 Economic Growth Shipments Scenario

In the GRIM, DOE modeled three shipment scenarios that consider the impacts of changes in the overall U.S economy. These shipment scenarios are based on the Energy Information Administration’s (EIA) 2009 Annual Energy Outlook Report (

AEO 2009 ) for the period 1990–2030. AEO 2009 provides three scenarios: the Reference case, the High Economic Growth case, and the Low Economic Growth case. DOE does not present the GRIM results for the economic growth shipment scenarios. However, these scenarios are provided as an option for the user to select in the GRIM. It is also po ssible for the user to combine the price elasticity scenario with an economic scenario in the GRIM. See chapter 10 for more details on the economic growth shipment scenarios.

13.4.7 Production Costs

Changes in production costs impact revenues and gross profits. As shown in the engineering analysis (chapter 5 of this TSD), equipment that is more efficient usually costs more to produce than baseline equipment. For the MIA, DOE used the manufacturing production costs (MPCs) derived in the engineering analysis. The costs of CCWs were calculated using data supplied by AHAM and interviews with manufacturers. The GRIM included the proportion of costs devoted to labor, materials, overhead, and depreciation that make up the full cost of

13-14production or MPCs. DOE estimated the proportion of costs associated with each cost category by using information provided by AHAM 3 and U.S. Census Bureau’s Current Industry Reports ( CIR ) 4 and 2006 ASM for CCWs (see section 13.7.1.1 for derivation of the industry cost structure). Table 13.4.10 through Table 13.4.11 provide the MPC results used in the GRIM for CCWs.

Table 13.4.10 Base-Case Production Costs (2008$) used in the GRIM for Top-Loading Commercial Clothes Washers
TSL (MEF/WF) Labor Material Overhead Depreciation MPC

Baseline (1.26/9.5) $33.76 $228.47 $21.39 $12.69 $296.30 TSL 1, 2 (1.42/9.5) $42.60 $288.29 $26.99 $16.02 $373.90 TSL 3, 4, 5 (1.60/8.5) $49,14 $332.54 $31.13 $18.48 $431.29

Table 13.4.11 Base-Case Production Costs (2008$) used in the GRIM for Front-Loading Commercial Clothes Washers
TSL (MEF/WF) Labor Material Overhead Depreciation MPC

Baseline (1.72/8.0) $69.62 $471.11 $44.11 $26.18 $611.12 TSL 1 (1.80/7.5) $69.62 $471.11 $44.11 $26.18 $611.12 TSL 2, 3 (2.00/5.5) $71.24 $482.07 $45.13 $26.78 $625.23 TSL 4 (2.20/5.1) $74.10 $501.45 $46.95 $27.86 $650.36 TSL 5 (2.35/4.4) $77.16 $522.12 $48.88 $29.01 $677.18

13.4.8 Conversion Costs

Amended energy conservation standards typically cause manufacturers to incur one-time conversion costs to bring their production facilities and equipment designs into compliance with new regulations. For the purpose of the MIA, DOE classified these one-time conversion costs into two major groups: capital conversion costs and equipment conversion costs. Capital conversion costs are one-time investments in property, plant, and equipment to adapt or change existing production facilities so that new equipment designs can be fabricated and assembled under the new regulation. Equipment conversion costs are one-time investments in research, development, testing, and marketing focused on making equipment designs comply with amended energy conservation standards. The following sections describe in greater detail the inputs DOE used in the GRIM.

13.4.8.1 Capital Conversion Costs

DOE evaluated the level of capital investment needed to comply with amended energy conservation standards at each TSL. For each TSL, DOE estimated the proportion of equipment on the market will have to be redesigned to meet that TSL efficiency level. The higher the TSL, the greater the proportion of the equipment on the market that will require a redesign.

DOE used a platform approach to estimate the capital conversion costs for top-loading and front-loading CCWs. DOE used conversations with industry experts and equipment catalogs to estimate the number of platforms at each TSL that would require tooling changes to

13-15accommodate newly redesigned washers. Manufacturers that did not produce any equipment that met or exceeded a given TSL are expected to make substantial tooling changes, either through modifying existing tooling or ordering new sets. For equipment that almost met or which exceeded the efficiency requirements of a given TSL, DOE lowered the cost of the tooling changes because such washers are not expected to be significantly redesigned, nor would substantial changes to manufacturing assets be required. Table 13.4.12 summarizes the breakdown of conversion capital expenditure by TSL for the CCW industry.

Table 13.4.12 Capital Conversion Costs for Commercial Clothes Washers by TSL

TSL Total Industry Conversion Capital Costs (2008$ million) by Equipment Class

Top-Loading CCWs Front-Loading CCWs

Baseline $0 $0 TSL 1 $0 $0 TSL 2 $0 $0.6 TSL 3 $1.0 $0.6 TSL 4 $1.0 $1.4 TSL 5 $1.0 $4.1

13.4.8.2 Equipment Conversion Costs

DOE conducted interviews with manufacturers to better understand the product development process that manufacturers typically go through before they release new or improved equipment. The magnitude of the required investments varies by manufacturer and the TSL analyzed. For example, multiple manufacturers estimated that the time and resources spent on R&D, testing, and certification of equipment would depend significantly on the design path chosen to achieve higher efficiency, the energy conservation standard that would have to be met, capital resources, and other considerations.

DOE also used a platform approach to estimate the equipment conversion costs for toploading and front-loading CCWs. DOE used conversations with industry experts and equipment catalogs to estimate the number platforms at each TSL that would require a redesign to meet new energy conservation standards. Manufacturers that did not produce any equipment platforms that met or exceeded a given TSL were expected to redesign, test, and certify a new equipment platform. For equipment that almost met or which exceeded the efficiency requirements of a given TSL, DOE lowered the cost of the product development costs as such washers are not expected to be significantly redesigned. Table 13.4.13 summarizes the breakdown of equipment conversion costs by TSL for the CCW industry.

13-16Table 13.4.13 Equipment Conversion Costs for Commercial Clothes Washers by TSL

TSL Total Industry Equipment Conversion Costs (2008$ million) by Equipment Class

Top-Loading CCWs Front-Loading CCWs

Baseline $0 $0
TSL 1 $0 $0
TSL 2 $0 $3.1
TSL 3 $15.6 $3.1
TSL 4 $15.6 $7.0
TSL 5 $15.6 $20.3

13.4.9 Markups

To understand how baseline and more efficient equipment are differentiated, DOE reviewed manufacturer catalogs and utilized information gathered from manufacturers. To estimate the prices at which manufacturers sell their equipment, DOE applied markups to the production costs it had developed earlier.

DOE applied a single uniform “gross margin percentage” markup to manufacturing production costs across all efficiency levels. As production costs increase by efficiency level,this scenario implies that the absolute dollar markup will increase also. DOE used a nonproduction cost markup of 1.26, which includes SG&A expenses; R&D expenses; interest; and profit. This markup is consistent with the one DOE assumed in the base case for the GRIM.

13.4.10 Federal Production Tax Credits

In the GRIM, DOE includes a scenario that allows the user to include the estimates of the benefit of the Federal production tax credits found in title I section 1334 (c)(1)(B) of the Energy Policy Act of 2005 (EPACT 2005) and updated by Energy Improvement and Extension Act of 2008 (Public Law 110-343). See appendix 13C for a description of how DOE estimated the Federal production tax credits and its impacts on INPV results.

13.5 COMMERCIAL CLOTHES WASHER INDUSTRY FINANCIAL IMPACTS

Using the inputs described in the previous sections, the GRIM produced indicators of financial impacts on the CCW industry. The following sections detail additional inputs and assumptions relating only to CCWs, including the MIA results for two key financial metrics: INPV, and annual cash flows.

13-1713.5.1 Impacts on Industry Net Present Value

As previously stated, the INPV measures the industry value and is used in the MIA to compare the economic impacts of different TSLs. For the CCW industry, the GRIM estimated cash flows between 2009 and 2043, consistent with the forecast period used in the NIA (chapter 11).

In the MIA, DOE compares the INPV of the base case (no amended energy conservation standards) to that of each TSL. The difference between the base-case INPV and a standards case INPV is an estimate of the economic impacts that implementing that particular TSL would have on the entire industry. For the CCW industry, DOE examined a scenario where manufacturers will be able maintain gross margins as a percentage of revenues and unit shipments will not be impacted regardless of new energy conservation standards. DOE also considered a scenario where manufacturers will maintain their gross margin as a percentage of revenues, but total industry shipments will decrease yearly due the combined effects of increases in purchase price and decreases in operating costs due to amended energy conservation standards. These scenarios were chosen because all CCW manufacturers that were interviewed expressed little concern about preserving gross margin after the effective date of the standard, regardless of efficiency level. Rather, manufacturers were concerned about the potential of increased selling prices to shrink the size of the CCW market and the potentially large investments necessary to meet standards. The price-elasticity scenario takes both of these concerns into consideration. Table 13.5.1 through Table 13.5.6 provide the INPV estimates for the CCW industry under these two scenarios.

Table 13.5.1 Changes in Industry Net Present Value for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments) Preservation of Gross Margin Percentage Markup with Base-Case Shipments

Units Base Case Trial Standard Level 1 2 3 4 5

INPV (2008 $ millions) 33 37 37 29 29 29

Change in INPV (2008 $ millions) - 4.0 4.0 (4.0) (4.0) (4.0)
(%)

- 11.15 11.15 -10.91 -10.91 -10.91

Table 13.5.2 Changes in Industry Net Present Value for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand Shipments

Units Base Case Trial Standard Level 1 2 3 4 5

INPV (2008 $ millions) 33 36 36 27 27 27

Change in INPV (2008 $ millions) - 3 3 (6) (6) (6)
(%)

- 8.40% 8.40% -17.61% -17.61% -17.61%

13-18Table 13.5.3 Changes in Industry Net Present Value for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments) Preservation of Gross Margin Percentage Markup with Base-Case Shipments

Units Base Case Trial Standard Level 1 2 3 4 5

INPV (2008 $ millions) 29 29 26 26 24 12

Change in

INPV (2008 $ millions) - 0 (2) (2) (5) (17)
(%)

- 0.00 -8.01 -8.01 -15.83 -58.61

Table 13.5.4 Changes in Industry Net Present Value for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand Shipments

Units Base Case Trial Standard Level 1 2 3 4 5

INPV (2008 $ millions) 29 29 26 26 24 11

Change in

INPV (2008 $ millions) - 0 (2) (2) (5) (17)

(%)

- 0.00% -8.02% -8.02% - 16.39% -59.97%

Table 13.5.5 Changes in Industry Net Present Value for Top-Loading and Front-LoadingCommercial Clothes Washers (Preservation of Gross Margin Percentage Markup – BaseCase Shipments) Preservation of Gross Margin Percentage Markup with Base-Case Shipments

Units Base Case Trial Standard Level 1 2 3 4 5

INPV (2008 $ millions) 62 65 63 57 54 41

Change in INPV (2008 $ millions) - 4 1 (5) (8) (20)
(%)

- 5.97 2.24 -7.81 -12.73 -33.09

Table 13.5.6 Changes in Industry Net Present Value for Top-Loading and Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments) Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand Shipments

Units Base Case Trial Standard Level 1 2 3 4 5

INPV (2008 $ millions) 62 64 62 55 51 39

Change in INPV (2008 $ millions) - 3 0 (7) (10) (23)
(%)

- 4.50% 0.76% -11.39% -16.57% -37.30%

13-1913.5.2 Impacts on Annual Cash Flow

To get an idea of the behavior of annual net cash flows, DOE reports the annual net or free cash flows from 2009 through 2043 for the different TSL levels. Figure 13.5.1 through Figure 13.5.6 present the annual net cash flows for the base case and each of the five TSLs for the CCW industry assuming the different shipments scenarios.

Figure 13.5.1 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments)

13-20Figure 13.5.2 Annual Net Cash Flows for Top-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments)

Figure 13.5.3 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments)

13-21Figure 13.5.4 Annual Net Cash Flows for Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments)

Figure 13.5.5 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case Shipments)

13-22Figure 13.5.6 Annual Net Cash Flows for Top-Loading and Front-Loading Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of Demand Shipments)

Prior to the effective date of an amended energy conservation standard, cash flows are driven by the level of capital and equipment conversion costs and the proportion of these investments spent every year. After the standard announcement date, industry cash flows begin to decline as manufacturers use their financial resources to prepare for the new standard. Because higher TSLs require more expensive redesigns and tooling to accommodate newly redesigned washers, more stringent energy conservation standards have a greater impact on industry cash flows in the years prior to the effective date for both top-loading and front-loading washers.

While the impact on cash flows from the necessary investments does not appear prohibitively burdensome in the previous graphs, standards do greatly alter the industry cash flows. For top-loading washers, the maximum technologically feasible (max-tech) efficiency reduces cash flow by 272 percent compared to the base case in the year prior to the effective date of the standard. For front-loading washers, the max-tech efficiency reduces cash flow by 481 percent compared to the base case in the year prior to the effective date of the standard. Based on conversations with manufacturers, DOE modeled that redesigned washers would be based on existing washers, and hence no capital assets would be stranded due to standards. Consequently, there is no one-time injection of cash in the year of the standards from an asset write-down. In the years following the standard, the impact on cash flow depends on the operating revenue. Companies receive positive cash flows from operating profit after taxes. However, since higher TSLs do not have a significant impact on net profit, standards do not significantly alter cash flow in the years after the effective date of the standard.

13-2313.6 IMPACTS ON THE LOW-VOLUME COMMERCIAL CLOTHES WASHER MANUFACTURER

13.6.1 Introduction

The U.S. CCW market has three principal manufacturers. While two of them are welldiversified appliance manufacturers, the third is an LVM. In addition to being focused exclusively on laundry equipment, the LVM historically derived over 85 percent of its clothes washer revenues from sales to commercial market segments. Prior to 1999, the LVM manufactured over 300,000 residential washers and 100,000 CCWs annually. Due to a restructuring of its business, the LVM was contractually barred from manufacturing residential clothes washers from 1999 until 2004. While its subsequent SEC 10-K filings show significant growth in the residential market segment, Table 13.6.1 shows commercial sales still comprise the overwhelming majority of its clothes washer shipments. As a result, the LVM will be affected disproportionately by any changes to the CCW energy conservation standards compared to its larger competitors, which are more diversified and for whom CCW sales amount to less than 2 percent of their total clothes washer sales. Appendix 13A of today’s TSD further details the importance of the CCW business to the LVM.

Table 13.6.1 DOE Estimate of LVM Clothes Washer Sales and Unit Shipments in 2006

Market Segment Equipment Class Estimated

Revenue ($MM) Percentage Revenue of Clothes Washer Business Unit Shipment Volume by Sales Channel Commercial Top-Loading $42.5 59.9% 81,502 Front-Loading $19.2 27.0% 22,234 Residential Top-Loading $8.7 12.3% 19,586 Front-Loading $0.6 0.8% 707 Total Clothes Washer Shipments 124,028

13.6.2 Low-Volume Manufacturer Competitiveness

The financial reasons that LVM has been able to stay competitive in the commercial laundry business range from its well-depreciated machinery and legacy design to its successful customer and service networks. The LVM does not currently face a significant, inherent disadvantage in top-loading washers because these washers are based on legacy platforms for models originally produced at much higher volumes. Decades of production experience at higher volumes and a legacy design that has evolved gradually translates into lower per-unit R&D expenses. As a result, the LVM’s depreciation cost for top-loading washers is in line withthose of manufacturers which produce at higher volumes. Finally, the large installed base of toploading machines and stock of repair parts ensure a large market for replacement machines. The LVM sells its products to route operators and distributors who sell laundry services to end-users and who typically service the machines. Route operators’ and distributors’ large inventory of service parts and repair knowledge represent a significant switching cost, discouraging customers from adopting competing platforms when a washer is replaced. A market disruption, such as the wholesale adoption of front-loading CCWs, could place the LVM at risk of losing market share.

13-2413.6.3 Effects of a Transition to Front-Loading Platforms

In comments submitted in response to the advance notice of proposed rulemaking (ANOPR), the LVM stated that its most efficient top-loading washer reaches an MEF of 1.50. However, this washer uses a “partial drain” rinse which has not been fully embraced by the market. Consequently, the LVM stated that any standard above a 1.42 MEF (TSL 1) would require it to only manufacture front-loading washers. The LVM also stated that top-loading CCWs with an MEF greater than 1.42 would have to be based on non-traditional technologies (technologies that do not use a traditional agitator). The LVM stated that these non-traditional washers employ technologies that are proprietary and which would require an unjustifiable investment for the LVM to develop due to the size of the CCW market. Finally, the LVM stated that there have been issues with the performance of these products which have caused consumers to reject them.

DOE based the efficiency levels for top-loading washers on existing CCWs. Since the ANOPR, the LVM has introduced more efficient top-loading CCWs. The LVM currently markets a top-loading CCW with an efficiency rating of 1.55 MEF/8.6 WF. This efficiency is very close to the top-loading energy conservation standards proposed by TSL3 through TSL 5 (1.6 MEF/8.5 WF). DOE notes that the max-tech CCW on the market appears to meet the TSL 3 energy conservation standards without the use of proprietary technologies, which suggests that modifications to the LVM’s most efficient top-loading CCW could be made to meet TSL 3 through TSL 5. If the entire industry transitioned to only front-loading CCWs due to poor rinse or wash quality, the LVM would be placed in disadvantaged situation. While the current product offerings of the LVM and its competitors make it less likely that the industry will be forced to produce exclusively front-loading CCWs at any TSL, DOE is sensitive to consumer utility issues for higher efficiency top-loading CCWs, as consumers may have concerns about rinse or wash quality, for example.

Though the LVM has current equipment that nearly meets the proposed max-tech toploading efficiency, the effects of a transition to front-loading CCWs could have significant implications for the LVM. Were the LVM to transition to only offering front-loading washers, the LVM would have to make significant investments in capital and engineering to redesign its front-loading machines to lower cost and to expand production. Depending on CCW unit demand, the LVM’s competitors may or may not need to undertake similar line expansions of their combined residential and commercial clothes washer fabrication and assembly lines if they also transitioned to only offering front-loading CCWs. The need for an expansion would depend on the amount of spare capacity that their current manufacturing facilities have. For example, the LVM’s principal competitor ships about 7.5 million clothes washers domestically per year, so its share of the U.S. CCW market represents approximately 1.5 percent of its total domestic clothes washer shipments.

Assuming that this larger competitor produces 70 percent top-loading and 30 percent front-loading clothes washers, a marginal transfer of 100,000 CCWs to the front-loading manufacturing line would represent approximately a 5-percent front-loading manufacturing line expansion. By comparison, the LVM would have to more than double its front-loading clothes washer production to reach the same volumes. Furthermore, unlike the LVM, these larger competitors can base their front-loading CCW designs on high-volume residential platforms that

13-25have already benefited from years of refinement, cost reduction efforts, and production at high volumes.

13.6.4 Fixed Cost Impacts on a Low-Volume Manufacturer

In order to determine how a lower production volume can disproportionately affect a manufacturer, DOE determined the costs needed to build a “green-field” manufacturing facility to produce a new line of front-loading CCWs. To represent a manufacturer with low production volume, DOE determined the upfront capital and engineering costs to build a facility to produce 100,000 units annually. For a manufacturer with a high production volume (1.5 million units annually), DOE assumed that the same line would be used to build both residential and commercial clothes washers, allowing the upfront and depreciation costs to be spread over the entire production volume. DOE used information provided by manufacturers, AHAM, and industry experts to estimate the total costs of a green-field manufacturing facility. Table 13.6.2 and Table 13.6.3 show the upfront costs to build the facility for the manufacturers with low and high production volumes.

Table 13.6.2 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 100,000 units Per Year.
Total Equipment Investment

($MM) Total Conveyer Investment

($MM) Total Tooling Investment

($MM) Total Building Cost ($MM) Total Capital Investment

($MM)

Manufacturer with

Low Production Volume $13.53 $1.51 $17.65 $21.43 $54.12

Table 13.6.3 Capital Costs to Build a Green-Field Manufacturing Facility to Produce 1,500,000 units Per Year.
Total Equipment Investment

($MM) Total Conveyer Investment

($MM) Total Tooling Investment

($MM) Total Building Cost ($MM) Total Capital Investment

($MM)

Manufacturer with

High Production Volume $76.6 $10.4 $39.6 $100 $226.8

After determining the total costs needed to design a new line of equipment and build a new facility, DOE depreciated the equipment, tooling, and building to examine how these upfront costs would impact the cost of each unit for a low- and high-volume manufacturer. In order to determine the depreciation costs, DOE estimated depreciation over the useful lives of the equipment, building, and tooling using the straight line method. The assumptions used for the lifetime of the equipment, building, and tooling for a low- and high-volume production facility are shown in Table 13.6.4.

13-26Table 13.6.4 Depreciation Lifetime Assumptions for a Low- and High-Volume Manufacturer Average Equipment Life (Years) Average Tooling

Life (Years) Building Life (Years) Average Plant Depreciation Life (Years) Manufacturer with Low

Production Volume (100,000 units per year) 10.17 7.53 25 15.2

Manufacturer with High Production Volume (1,500,000 units per year) 10.77 2.99 25 15.69

Table 13.6.5 shows depreciation expenses per unit for a low- and high-volume manufacturer, as well as the cost disadvantage for an LVM. If a redesigned front-loading washer were built in a low volume, green-field manufacturing facility, an LVM would incur a significant depreciation cost disadvantage. In comparison to a manufacturer with a high production volume, DOE estimated that this disadvantage would be approximately $40.07 per unit.

Table 13.6.5 Per Unit Depreciation Costs for a Low- and High-Volume Manufacturer

Equipment Building Tooling Total Depreciation Cost Per Unit Manufacturer with Low

Production Volume (100,000 units per year) $17.56 $11.97 $32.79 $62.32

Manufacturer with High Production Volume (1,500,000 units per year) $6.27 $3.91 $12.07 $22.25

Low Volume Per Unit Disadvantage $11.29 $8.06 $20.72 $40.07

In addition to a depreciation cost disadvantage, a low-volume manufacturer would also incur a per-unit R&D cost disadvantage. To quantify the R&D cost disadvantage, DOE assumed that both types of manufacturers would have the same engineering costs to design a new line of front-loading washers. Based on information provided by manufacturers and industry experts, DOE estimated it would cost $10 million to redesign a front-loading washer from the ground up. If the equipment lifetime is assumed to be 7 years, an LVM would incur a R&D cost disadvantage of approximately $13.33 per unit. The impacts at other equipment lifetimes are shown in Table 13.6.6.

13-27Table 13.6.6 Per-Unit Impacts of a $10 Million R&D Expense at Various Equipment Lifetimes Equipment Lifetime (years)
7 10 20 Low-Volume Per-Unit R&D

(100,000 units per year) $14.29 $10 $5
High-Volume Per-Unit R&D

(1,500,000 units per year) $0.95 $.67 $0.33

Low-Volume Per-Unit Disadvantage $13.33 9.33 $4.67

In summary, if a new standard forces an LVM to invest in a green-field manufacturing facility to make front-loading units, the LVM would incur a combined depreciation and R&D cost disadvantage of $53.40, $49.40, or $44.74 per unit, depending on the assumed equipment lifetime. Based on a review of SEC 10-K forms and data provided by industry, DOE estimates that the earnings before interest and taxes for a front-loading washer is $47 per unit under present market conditions.

The per-unit cost impacts of R&D and capital investments suggest that an LVM would most likely not invest in such an extensive project. It would not be economically justified to make the necessary investment for the green-field manufacturing plant because the depreciation and R&D cost disadvantages after the investment are severe enough to completely erode profits, assuming that front-loading CCWs remain as profitable as they have been traditionally. Manufacturers have stated that if the CCW industry were to transition to front-loading CCWs, commoditization and lower prices are likely to follow. Either effect would put even greater pressure on earnings before interest, taxes, and amortization (EBITA) per unit. Table 13.6.7 summarizes the estimated profit per unit after the disadvantage from depreciation and R&D expenses that a manufacturer with low production volume will incur at various equipment lifetimes.

Table 13.6.7 Total Per-Unit Profit for an LVM after Depreciation and R&D Disadvantage Equipment Lifetime (Years)
5 7 10 20 Estimated Industry

Average Profit from Front-loading Washer $47.00

Low-Volume PerUnit Profit after Depreciation and R&D Cost Disadvantage -$11.73 -$6.40 -$3.60 $2.27

Based on this analysis, it is likely that any standard that necessitates a departure from current designs would have substantial negative impacts on a LVM and could cause it to cease the production of CCWs.

13-2813.6.5 Financial Position of the LVM

If the LVM in the CCW industry were required to build the green-field site described in 13.6.4 to comply with a front-loading standard, the investments would represent a significant hardship. The LVM would devote almost all of its planned R&D expenses to the project and would have to spend approximately 6 times the planned annual capital expenses. Table 13.6.8 below compares the LVM’s 2008 expenditures on capital and R&D with the amounts DOE assumed would be needed to build a green-field facility for a new line of front-loading washers. Even though the necessary R&D expenses are lower than capital, R&D will have a significant impact on the profitability of the company the years in which they are incurred. R&D costs cannot be amortized so every additional dollar spent on R&D directly lowers profit.

Table 13.6.8 Comparison of the LVM’s 2008 Financials with DOE’s Green-Field Assumptions
LVM’s 2008 Expense* DOE’s Expected Expense for a Green-Field site DOE’s Expected Expense as a Percentage of the LVM’s 2008 Expense DOE’s Expected Expense as a Percentage of the LVM’s 2008 Operating Income DOE’s Expected Expense as a Percentage of the LVM’s 2008 Net Income Capital Expenditures $8.8 Million $54.12 Million 615% 103% 348%

R&D Expenditures $11.3 Million $10.0 Million 89% 19% 64%

*Source: LVM 2008 SEC Form 10-K

The current financial position of the LVM makes these one-time expenses even more costly. Its indebtedness and current schedule of payments may make it more difficult to raise theadditional capital needed to make the necessary changes to accommodate an exclusively frontloading line, as the firm is highly leveraged. According to the LVM’s 2008 SEC Form 10-K filed on December 31, 2008, the LVM had $310.7 million of long-term debt and capital lease obligation or 4.3 times the adjusted EBITA. The report also stated that the indebtedness has the potential to put the LVM at a disadvantage compared to other manufacturers that do not carry significant long-term liabilities. The debt can also affect current operations by requiring a substantial portion of the cash flow from operations to make payments on the debt, reducing the available cash to fund working capital, capital expenditures, acquisitions, R&D, and planned expansion into consumer laundry. Due to this highly leveraged financial structure, interest represents a significant expense. The interest expense was almost double the net income, or $30.7 million in 2008.

Due to the current structure of the LVM’s debt, it is unlikely that current credit lines could pay for the up-front costs of constructing a new front-loading manufacturing facility. The LVM’s 2008 10-K report stated that because of the covenants on the principal line of credit, only an additional $16.2 million could be borrowed. The LVM would likely have to seek a new line of credit to finance the changes needed to build a green-field facility and design a new line of washers. This would further increase the interest expense and strain the availability of cash for working capital, capital expenditures, and R&D. Finally, the timing of these expenditures would

13-29come at a particularly bad time for the LVM. According to its 2008 SEC 10-K report, in 2012, the LVM has $156.7 million of its long-term debt due. Because it will most likely be refinancing a large portion of its debt at that time, it is likel y that the credit and interest terms will be more stringent.

13.6.6 Additional Impacts on the Low-Volume Manufacturer

The lower overall production volumes make it likely that the LVM will continue to face higher purchased parts costs and lower productivity, putting more upward pressure on manufacturing cost. The LVM is not projected to be able to produce CCWs at a scale that would allow it to overcome these disadvantages since it would have to increase its production volume by multiples to do so. As mentioned above, the LVM expects commoditization and lower profits if the CCW market were to transition to exclusively front-loading CCWs. The LVM noted that baseline top-loading CCWs have a long history of price competition and commoditization. Should the CCW market shift to exclusive use of front-loading CCWs due to concerns about the wash quality of top-loading CCWs, a similar commoditization is likely to occur for front-loading CCWs, causing margin pressure.

Thus, on top of a line expansion to cover the two-fold increase front-loading CCW demand (if demand is not impacted), expected margin pressure would require a redesign of the current front-loading CCWs to be more cost competitive. Given the high costs of such a redesign, the required manufacturing investments, the low expected returns, and the probable cost disadvantages discussed in section 13.6.4, the LVM has stated that it would most likely exit the CCW industry under such circumstances. Even if the LVM decided to stay in the CCW market, it could be capacity-constrained due to the investment and line expansion requirements, and, hence, its market share could shrink as competitors supply what the LVM cannot.

As previously stated, the well-depreciated machinery and legacy top-loading design helps mitigate a natural cost disadvantage in deprecia tion and R&D that would be incurred if the LVM had to shift a significant proportion of its production to front-loading washers. In addition, the LVM maintains a competitive advantage through its successful customer and service network. Lastly, a market disruption, such as a rapid transition to front-loading CCWs would put the LVM at a greater disadvantage than its competitors since the LVM doesn’t have the scale to quickly deliver cost-effective front-loading clothes washers for the CCW market.

13.6.7 Consequences of Higher Energy Conservation Standards on the LVM

Due to its manufacturing scale and focus on the CCW industry, any energy conservation standard affecting the CCW industry will impact the LVM disproportionately compared to its more diversified competitors that derive less than 2 percent of their revenues from the CCW market. The LVM has stated that any large-scale investments without adequate returns would likely force it to exit the residential-style CCW business, which would cause it material harm and damage CCW-market competition. As shown in section 13.6.4, an investment of that scale will still put the firm at a depreciation and R&D cost disadvantage that significantly erodes profits. A wholesale plant refit could become sufficiently expensive as to justify the construction of a new facility or to outsource production entirely.

13-30The LVM stated that its U.S. facility would no longer be viable if washer production ceased. The domestic washer production (both residential and commercial) equates to approximately 22 percent of the LVM’s total revenue. However, the roughly 150,000 total annual clothes washer shipments are vital to the facility as they give the facility minimum manufacturing scale: To remain competitive with larger companies, the LVM must spread its overhead, equipment, tooling, raw material, and purchased parts purchases over as large a volume as possible. Though extractors and tumbler dryers are important to overall revenue at the facility, the higher volume of the washer lines is critical to reducing overhead. In addition, the LVM believes that it has remained successful by offering a complete line of commercial laundry equipment. It expects that the volume of all other equipment would fall if it no longer offered the most basic laundry equipment. The volume of dryers would be especially impacted because many clothes washer sales are coupled with clothes dryer sales in both the residential and commercial segments.

Based on the CCW revenues reported in appendix 13A and using the employment assumptions in section 13.7.1, DOE estimates there are approximately 150 production workers at the LVM manufacturing products directly covered by this rulemaking. In addition, DOE estimates that there are 20 non-production employees attributable to CCWs at the facility. The domestic facility also manufactures residential top- and front-loading washers, standard dryers, washer-extractors, and tumbler dryers. If the LVM decided to no longer produce any soft-mount washers or standard dryers at the facility because it could not sell dryers without selling washers, approximately 292 production and 40 non-production jobs would be lost. Including all production workers involved in covered and non-covered products, the closure of the LVM domestic manufacturing plant equates to a loss of approximately 600 factory employees.

13.7 OTHER IMPACTS

13.7.1 Employment

13.7.1.1 Methodology

To quantitatively assess the impacts of energy conservation standards on CCW manufacturing employment, DOE used the GRIM to estimate the domestic labor expenditures and number of employees in the base case and at each TSL from 2009 through 2043 for CCW industry. DOE used statistical data from the 2006 ASM and 2006 CIR , the results of the engineering analysis, and interviews with manufacturers to estimate the inputs necessary to calculate industry-wide labor expenditures and domestic employment levels.

DOE constructed the industry cost structure using publicly available information from the 2006 ASM and SEC 10-K reports filed by publicly owned manufacturers. The labor percentage of the industry cost structure is calculated by dividing total production worker wages by the total value of shipments. For CCWs, DOE used the industry cost structure for household laundry equipment manufacturing (NAICS 335224) because it most closely aligns with the cost structure of the CCW industry. CCW manufacturing is classified under NAICS 333312, but the 2006 ASM only provides data for the higher-level NAICS 33331 (commercial and service industry machinery manufacturing). The data for this broad code does not provide the level of detail necessary for calculating employment in the smaller CCW industry.

13-31The labor percentage and other components of the industry cost structure for CCWs are shown in Figure 13.7.1 below.

Income from

Labor (production

workers), 9.0%

R&D, 2.2%

SG&A, 12.5% Materials, 61.2% Overhead, 5.7%

Depreciation, 3.4% Operations, 5.9%

Figure 13.7.1 Commercial Clothes Washer Industry Cost Structure

To determine the total annual labor expenditure on production labor, the value of production labor in the industry cost structure was converted to a percentage of the cost of goods sold (COGS). In the GRIMs, the labor expenditures in each year are calculated by multiplying the COGS or MPCs by the labor percentage of COGS. As a result, higher TSLs have greater direct labor costs because more efficient equipment has higher MPCs.

To calculate the annual domestic labor expenditures, DOE used the 2006 CIR to estimate the percentage of domestic production in each industry. Census data was not available for CCW production; therefore, DOE used the residential clothes washer domestic production percentage (approximately 81 percent) to estimate the domestic production percentage for CCWs. Manufacturer interviews confirmed that the domestic production of CCWs closely mirrors that for residential clothes washers.

DOE multiplied the total annual labor expenditures in the GRIM by the percentage of U.S. production for domestic consumption to calculate domestic labor expenditures for production labor in each industry. The domestic annual labor expenditures in the GRIMs were converted to domestic production employment levels by dividing production labor expenditures

13-32by the annual payment per production worker (production worker hours times the labor rate found in the 2006 ASM ). b The number of non-production employees was calculated by multiplying the number of production workers by the ratio of non-production workers to production workers calculated using the employment data in the 2006 ASM

. The domestic annual labor expenditures and employment levels were calculated for the base case and at each TSL. The impacts on domestic employment due to standards can be assessed by comparing the employment results in the base case to the results at each TSL. In all GRIMs, the employment results represent U.S. production workers that are impacted by this rulemaking. U.S. workers involved in manufacturing or supporting equipment for export would not be impacted and are not included in the analysis of the labor impacts.

13.7.1.2 Results

The GRIM calculates that the CCW industry’s domestic labor expenditure for production workers in 2013 is approximately $7 million (total COGS in 2013 times the production labor percentage of COGS times the percentage of U.S production). Using the $19.75 wage rate and 1,890 production hours per year per employee found in the 2006 ASM , the GRIM estimates there are approximately 188 U.S. production employees involved in manufacturing CCW products covered by this rulemaking. The employment spreadsheet of the GRIM shows the annual employment impacts in further detail.

Table 13.7.1 illustrates the impact of amended energy conservation standards on employment levels at each TSL for the CCW industry, as calculated by the GRIM.

Table 13.7.1 Commercial Clothes Washer Industry Estimated Employment Impacts in 2013
Trial Standard Level Base Case TSL 1 TSL 2 TSL 3 TSL 4 TSL 5

Total Number of Domestic CCW Production Employees in 2013 188 204 204 222 224 228 Change in Total Number of Domestic CCW Production Em ployees in 2013 Due to Standards - 16 16 33 36 40

Total Number of Domestic CCW NonProduction Employees in 2013 26 28 28 30 31 31

Figure 13.7.2 shows annual domestic employment levels for each TSL calculated by the GRIM.

b 2006 ASM labor rates and production hours per year per em ployee are very similar to figures reported in the engineering analysis. DOE used 2006 ASM figures to ensure that a consistent set of publicly available data is used for the manufacturing em ployment analysis.

13-330 50 100 150 200 250 300 350Total Domestic Employment (# of workers)

Year Total Domestic Direct Employment

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Energy Conservation Standards Effective Date January 2013

Figure 13.7.2 Total Commercial Clothes Washer Industry Domestic Employment by Year

Because employment expenditures are assumed to be a fixed percentage of COGS, and the MPCs increase with more efficient equipment, the GRIM predicts an increase in employment after amended standards become effective. As discussed in manufacturing interviews, there are a variety of manufacturers with different capabilities. Since two out of the three manufacturers are large, diversified manufacturers that treat CCWs as an extension of their residential washer lines, the domestic employment in the GRIM would only include those production workers involved in making CCWs for U.S. consumption. The third manufacturer is an LVM with the majority of its production focused on CCWs and other commercial laundry equipment rather than residential clothes washers. The domestic employment figures in the GRIM would only include those production workers directly involved in CCW manufacturing.

Due to the uncertainty in the business decisions of where to manufacture washers after amended standards become effective, DOE presents a range of potential employment impacts if the potential for relocation is considered. If all manufacturers do not change sourcing and production facility locations in response to amended energy conservation standards, such standards have the potential to increase the number of U.S. production workers as shown in Table 13.4.1. Conversely, amended standards could result in the loss of 188 production jobs if all U.S. manufacturers source standards-compliant CCWs or shift U.S. production abroad.

At each TSL, manufacturers face different pressures that could impact their employmentdecisions. Currently, all top-loading CCWs are produced in the United States, whereas frontloading CCWs are produced both domestically and abroad. At TSL 1 and TSL 2, the GRIM predicts that there will be positive direct employment impacts. Efficiency improvements are likely to require an increase in the labor content of top-loading CCWs. All manufacturers already make top-loading CCWs that either meet or exceed the efficiency requirements of TSL 1 and TSL 2. Similarly, two of the three CCW manufacturers have existing front-loading CCWs that meet the efficiency levels of TSL 1, whereas the remaining CCW manufacturer would have

13-34to modify a front-loading CCW at TSL 2. Although there are capital and conversion costs associated with the modifications for one of the manufacturers, it is likely that the higher labor content needed for the more efficient CCWs would increase employment, as predicted in the GRIM. Manufacturers stated they are not likely to relocate production at either TSL 1 or TSL 2. Manufacturers have stated that they are not likely to relocate production because capital and conversion investments at these TSLs are small.

At TSL 3 and higher (for which the efficiency levels for top-loading CCWs remain the same), two CCW manufacturers would have to update a top-loading CCW platform to meet the proposed energy conservation standards. DOE research suggests that the revised max-tech level for top-loading CCWs should be attainable using existing CCW platforms that nearly meet the max-tech level. While several manufacturers currently market top-loading CCWs at or near the max-tech efficiency level, multiple manufacturers have stated that the technologies used to achieve these efficiency levels are not embraced by all customers.

Two out of three CCW manufacturers currently produce front-loading CCWs at the energy conservation standards proposed at TSL 3. The remaining manufacturer would have to modify an existing platform or source a different one to meet these proposed standards. Though there are capital and conversion costs associated with the modifications for one of the manufacturers, it is likely that the higher labor content needed for the more efficient washers would increase employment, as predicted in the GRIM.

Two of the three major CCW manufacturers currently produce a front-loading CCW that can meet the energy conservation standards of TSL 4. The remaining manufacturer would have to modify an existing residential front-loading clothes washer platform it already sources, or find a new supplier for its front-loading CCWs.

Only one major CCW manufacturer currently makes a front-loading CCW which meets the energy conservation standards proposed at TSL 5. The remaining two manufacturers would have to develop new CCW platforms, modify existing ones, or source them from other manufacturers.

Any TSL above TSL 3 is likely to impact manufacturers significantly, since these TSLs require manufacturers to update two product platforms ( i.e. front-loading and top-loading) rather than just one. For example, the LVM is unlikely to be able to afford two concurrent equipment development cycles, since doing so would require more manpower, investment, etc. than the LVM has funds for. Thus, such a scenario could cause the LVM to abandon one or both of its CCW platforms, causing it material harm and potentially having an adverse impact on the competitiveness of the CCW industry.

Because CCW production is treated as an extension of residential washer production, it is difficult to estimate the number of domestic manufacturing jobs that would be eliminated if either high-volume manufacturer decreased CCW production at TSL 4 through TSL 5. The severity of the impact would depend upon how much domestic production remained after the amended standards became effective.

13-35Finally, the LVM’s sourcing decision will have a large impact on the employment impacts for the industry. The LVM stated that standards could force it to exit the CCW industry if the necessary investments could not be justified. The LVM also stated that it cannot manufacture top-loading CCWs above TSL 2. The LVM’s most efficient top-loading CCW nearly meets the max-tech level. However, the LVM has stated that it would not manufacture a top-loading CCW higher than 1.42 MEF, and would likely exit the CCW market if higher standards were adopted.

Using the employment assumptions and the revenues reported in appendix 13A, DOE estimates that if the LVM exited the CCW market in response to standards, it would directly impact 150 production workers. However, the LVM also stated that its U.S. facility would no longer be viable if residential and commercial washer production ceased. Washer sales are vital to the facility because they add substantial scale for spreading overhead, lead to coupled dryer sales, and allow them to offer a full range of laundry equipment to their customers. If all residential and commercial soft mount washers and standard dryers production ceased at the facility, approximately 292 production jobs would be lost. If the entire facility were closed, approximately 600 employees would be impacted. The employment impacts for the LVM are discussed individually in section 13.6.7.

13.7.2 Production Capacity

According to the majority of CCW manufacturers, amended energy conservation standards could potentially impact manufacturers’ production capacity depending on the efficiency level required. Necessary redesigns of front-loading and top-loading CCWs would not change the fundamental assembly of the equipment or cause a drastic increase in the volume requirements of either front-loading or top-loading CCW. Thus, DOE believes manufacturers will be able to maintain manufacturing capacity levels and continue to meet market demand under amended energy conservation standards.

However, a very high energy conservation standard for top-loading CCWs could cause a manufacturer to abandon further manufacture of top-loading CCWs after the effective date (if end-users reject the wash performance of higher efficiency top-loading CCWs due to concerns about wash quality, for example). Instead of manufacturing top-loading CCWs, the manufacturers could elect to switch their entire production over to front-loading CCWs. Since top-loading and front-loading clothes washers share few, if any parts, are built on completely separate assembly lines, and are built at very different production volumes, a manufacturer may not be able to make a platform switch from top-loading to front-loading CCWs without significant impacts on equipment development and capital expenses, along with capacity constraints.

For example, multiple manufacturers stated during interviews that front-loading CCWs represent a relatively small segment of their total production volumes. Thus, their front-loadingproduction capacity may need to be substantially expanded to meet the demand that their topproduction lines used to meet. This expansion could possibly affect capacity until new production lines come on-line to service demand. In addition, manufacturers stated that the higher prices of front-loading washers could lead to a decrease in shipments. This could lead to

13-36a permanently lower production capacity as machines are repaired and the equipment lifetime of existing washers is extended.

13.7.3 Cumulative Regulatory Burden

While any one regulation may not impose a significant burden on manufacturers, the combined effects of several impending regulations may have serious consequences for some manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single regulation may overlook this cumulative regulatory burden. For the cumulative regulatory burden analysis, DOE describes other significant product-specific regulations that could affect CCW manufacturers that will take effect 3 years befo re or 3 years after the effective date of any amended energy conservation standards for these products. c

Companies which produce a wide range of regulated products and equipment may be faced with more capital and equipment development expenditures than competitors with a narrower scope of products. Regulatory burdens can prompt companies to exit the market or reduce their equipment offerings, potentially reducing competition. Smaller companies can be disproportionately impacted by regulatory costs, since such companies have lower sales volumes over which they can amortize the costs of meeting new regulations. DOE considers that a proposed standard is not economically justified if it contributes to an unacceptable level of cumulative regulatory burden.

In addition to the energy conservation regulations for CCWs, several other Federal regulations and pending regulations apply to these products and other equipment produced by the same manufacturers. DOE recognizes that each regulation can significantly impact manufacturers’ financial operations. Multiple re gulations affecting the same manufacturer can quickly strain manufacturers’ profits and possibly cause an exit from the market. The following sections provide a qualitative discussion of some of these regulations and standards.

13.7.3.1 Additional Federal Energy Conservation Standards

Table 13.7.2 list the Federal regulationss that could also affect manufacturers of CCW in the 3 years before and the 3 years after the effective date of any amended energy conservation standards for this equipment. It must be noted that while the list of products is long, the cumulative burden on any particular firm is variable, since the range of products and equipment for each company is different.

c The effective date for any amended CCW energy conservation standards is approximately 3 years from the date of publication of the final rule.

13-37Table 13.7.2 Other DOE Energy Conservation Standards Affecting the CCW Industry Regulation Approximate Effective Date* Number of Impacted Companies from the MTA Estimated Total Conversion Expenses** Residential Clothes Washers 2014* 6 N/A †

Residential Refrigerators and Freezers 2010* 5 N/A †

Dishwashers 2012 4 N/A †
Packaged Terminal Air Conditioners and Heat Pumps 2012* 4 $17.3(2007$) d

Room Air Conditioners 2014* 3 N/A † Cooking Products 2012* 3 $22.6(2006$) e Battery Chargers 2014* 2 N/A †
Dehumidifiers 2012 2 N/A †
Residential Furnaces 2015* 2 $97 (2006$) f External Power Supplies 2014* 2 N/A †
Residential Fluorescent and Incandescent Lamps 2012* 1 N/A †

Residential Water Heaters 2015* 1 N/A †

Commercial Beverage Vending Machines 2012* 1 N/A †

*The dates listed are an approximation. The exact dates are pendi ng final DOE action ** Total conversion expenses include both capital and equipment conversion expenses. † For energy conservation standard s for ongoing rulemakings that are aw aiting DOE final action, DOE does not have finalized estimated total industry conversion expe nse. For minimum performance requirements prescribed by EPACT 2005, DOE did not estimate total industry c onversion expenses because an MIA was not completed as part of a rulemaking. 42 U.S.C. 6291-6317. For minimum performance requirements prescribed by EISA 2007, DOE did not estimate total industry conversion expenses because an MIA was not completed as part of a rulemaking. Pub. L. 110-140.

Additional investments necessary to meet these potential energy conservation standards could have significant impacts on manufacturers of the covered products and equipment. However, DOE has limited data on the importance of these other regulated products for manufacturers of CCWs. Differences in market shares and manufacturing processes of other regulated products and equipment for each manufacturer could cause varying degrees of burdens on these manufacturers. Therefore, DOE only estimated the cost of compliance to meet other energy conservation standards for regulated products and equipment if DOE had published a final rule.

d Estimated industry conversion expenses were p ublished in the TSD for the October 2008 packaged terminal air – conditioners and heat pumps final rule. 73 FR 58808. Th e TSD for the 2008 PTAC and PTHP final rule can be found at: http://www1.eere.energy.gov /buildings/appliance_standard s/commercial/ptacs_pthps_ final_rule.html

e Estimated industry conversion expenses were published in the TSD for the Ap ril 2009 cooking products final rule. 74 FR 16072. The TSD for the 2009 cooki ng products final rule can be found at: http://www1.eere.energy.gov/buildings/appliance_standards/residential/cooking_products.html
f Estimated industry conversion expenses were published in the TSD for the November 2007 residential furnace final rule. 72 FR 65136. The TSD for the 2007 residential furnace final rule can be found at: http://www1.eere.energy.go v/buildings/appliance_st andards/residentia l/furnace_boiler_fr.html

13-38While any company that manufactures products covered in pending rulemakings has the potential to incur overlapping investments to comply with other standards, manufacturers of CCWs could be greatly impacted by the upcoming rule covering residential clothes washers. Manufacturers of CCWs typically manufacture much of this equipment on the same assembly lines as their residential clothes washers. Any changes that are needed to comply with this rule would have potential interactions with the production of residential washers. Depending on the standard levels that are adopted for residential washers, the production lines for both products may have to be significantly altered.

13.7.3.2 State Energy and Water Conservation Standards

In addition to Federal regulations, CCW manufacturers are also subject to State energy and water conservation standards. CCWs are covered by the State standards listed in Table 13.7.3.

Table 13.7.3 State Commercial Clothes Washer Regulations Similar to EPACT 2005

State Effective Date Difference from EPACT 2005 Arizona MEF and WF: 1/1/08 Standa rds effective one year later than EPACT 2005
California MEF: 1/1/05 WF: 1/1/07 MEF standard effectiv e two years earlier than EPACT 2005

Connecticut MEF and WF: 7/1/06 Standards effective six months earlier than EPACT 2005 Maryland MEF and WF: 3/1/07 Standards effe ctive two months later than EPACT 2005
New Jersey MEF: 1/1/07 WF: 1/1/10 Water factor standard effective three years later than EPACT 2005 Oregon MEF and WF: 1/1/08 Standards effe ctive one year later than EPACT 2005 Rhode Island MEF and WF: 1/1/07 Identical to EPACT 2005
Washington MEF - For Sale: 1/1/07 MEF – Installation: 1/1/08 Does not address water factor

As presented in the table above, the State of California mandates energy and water conservation standards for commercial front-loading and commercial top-loading automatic clothes washers. Table 13.7.4 provides the State’s CCW energy conservation standards, which are dependent on clothes container capacity, and the water conservation standards, which became effective two years after the MEF standards.

Table 13.7.4 California State Energy and Water Conservation Standards for Commercial Clothes Washers
Clothes Washer Classification Clothes Container Compartment Capacity (cu. ft.) Minimum MEF Effective January 1, 2005 Maximum Water Factor Effective January 1, 2007

Front-loading < 3.5 1.26 9.5

Top-loading < 1.6 � 1.6 and < 4.0 0.65 1.26 9.5 9.5

In addition to the efficiency standards discussed above, the State of California requires that commercial top-loading semi-automatic clothes washers and commercial suds-saving clothes washers manufactured on or after January 1, 2005 have an unheated rinse water option.

13-39Additionally, California issued minimum water conservation standards for residential clothes washers. While this does not directly affect equipment covered by the rulemakings, DOE is aware that this standard may have impacts on manufacturers of CCWs and other household appliances. Although Federal standards exist for the energy consumption of residential clothes washers, no such standard exists for the water efficiency. On September 16, 2005, the California Energy Commission (CEC) issued a petition for an exemption from Federal preemption to seek to apply its own State regulation. DOE accepted written comments regarding this California petition until April 7, 2006. Table 13.7.5 provides the State’s proposed residential clothes washer water conservation standards and their respective effective dates.

Table 13.7.5 California Water Conservation Standards for Residential Clothes Washers
Clothes Washer Maximum Water Factor (gallons/cu. ft.)

Classification Effective January 1, 2007 Effective January 1, 2010 Top-loading Front-loading 8.5
8.5 6.0
6.0

On December 28, 2006, DOE issued a decision denying the California petition. 71 FR 78157. The denial of the petition was based on three factors. First, DOE determined that it does not have the statutory authority to prescribe a rule for California that would become effective by January 1, 2007, the first of two compliance dates contained in title 20, section 1605.2(p)(1) of the California Code of Regulations. Second, DOE ruled that CEC had not established by a preponderance of the evidence that the State of California has unusual and compelling water interests, a condition required by the Energy and Policy Conservation Act for DOE to grant California a waiver from Federal preemption. 42 USC 6297(d)(1)(B). Finally, a preponderance of evidence showed that the California regulation would likely result in the unavailability of a class of residential clothes washers, specifically top-loader machines, in California.

13.7.3.3 International Energy Conservation Standards

DOE is not aware of any foreign energy conservation standards covering CCWs. However, several foreign energy conservation standards cover residential clothes washers, and DOE understands that this rulemaking may still impact some North American manufacturers in the home appliance industry.

The Canadian government regulates the efficiency of residential clothes washers. This standard applies to standard or compact electrically operated household clothes washers that are top- or front-loaded, and that have an internal control system that regulates the water temperature without the need for user intervention subsequent to initiation of machine operation. The current standards went into effect January 1, 2007, with increases in the standards for some equipment classes compared to the previous standards which had been in effect since January 1, 2004.

Mexico mandates energy conservation standards for residential clothes washers sold in the country. The standard does not apply to clothes washers that do not use electricity or are used for commercial or industrial applications.

13-4013.7.3.4 International Test Procedures

Currently, manufacturers of CCWs are principally impacted by foreign regulation due to the need to use a separate test procedure for foreign markets. Depending on the country where the regulation is from, manufacturers must use a separate test procedure for exported equipment. For example, CCWs are subject to a different test procedure when shipped to Australia. Manufacturers often have to contract foreign laboratories to conduct tests at the foreign locations.

13.8 CONCLUSIONS

The following section summarizes the different impacts for the scenarios DOE believes are most likely to capture the range of impacts on CCW manufacturers as a result of amended energy conservation standards. DOE also notes that while these scenarios bound the range of most plausible impacts on manufacturers, there potentially could be circumstances which cause manufacturers to experience impacts outside of this range.

The major source of uncertainty voiced by CCWmmanufacturers during the interviews is the impact of higher energy conservation standards on the number of CCWs sold. Future equipment sales are particularly important, considering the high capital costs (particularly design costs) compared to the small volume of equipment sold. In light of the concern over future shipments, DOE modeled two MIA scenarios, based on two shipment projections from the NIA.

To assess the lower end of the range of potential impacts for the CCW industry, DOE considered a scenario wherein unit shipments will not be impacted regardless of amended energy conservation standards – this scenario is called the base-case shipments scenario. To assess the higher end of the range of potential impacts for the CCW industry, DOE considered a scenario in which total industry shipments would decrease due the combined effects of increases in purchase price and decreases in operating costs due to amended energy conservation standards – this scenario is called the price elasticity of demand scenario. In both scenarios it is assumed that manufacturers will be able maintain the same gross margins (as a percentage of revenues) that are currently obtained in the base case.

At TSL 1, the impact on INPV and cash flow varies depending on the manufacturers’ ability to maintain revenues as shipments decr ease due to the price elasticity. DOE estimated the impacts in INPV at TSL 1 to range from positive $3.7 million to positive $2.8 million, or a change in INPV of 5.97 percent to 4.50 percent. At this level, the industry cash flow does not decrease from the base-case value of $3.8 million in the year leading up to the standards. Since all manufacturers currently make or source top-loading and front-loading CCWs that meet efficiency levels above this level, DOE assumed that there would be no equipment or capital conversion costs.

At TSL 2, DOE estimated the impacts in INPV to range from positive $1.4 million to positive $0.5 million, or a change in INPV of 2.24 percent to 0.76 percent. At this level, the industry cash flow decreases by approximately 27.7 percent, to $2.8 million, compared to the base-case value of $3.8 million in the year leading up to the standards. Since all manufacturers of top-loading washers already sell equipment that exceeds the efficiency requirements proposed at

13-41this TSL, DOE assumed that there would be no equipment or capital conversion costs for toploading washers at this TSL. Over 95 percent of all currently sold front-loading CCW SKUs have efficiency levels that achieve or exceed this level, and all manufacturers sell front-loading washers that achieve or exceed this level. Accordingly, DOE estimated that the industry would incur relatively small equipment and capital conversion costs at this TSL.

At TSL 3, DOE estimated the impacts in INPV to range from negative $4.8 million to negative $7.0 million, or a change in INPV of -7.81 percent to -11.39 percent. At this level, the industry cash flow decreases by approximately 158 percent, to -$2.2 million, compared to the base-case value of $3.8 million in the year leading up to the standards. Only one manufacturer currently markets a single top-loading CCW SKU at this TSL. DOE estimates that at least one manufacturer will need to redesign and retool a line of top-loading CCWs to meet the max-tech efficiency requirements of TSL 3. For top-loading CCWs, multiple manufacturers stated that customers could see a reduction in wash quality or reject new designs based on a perceived reduction in wash quality or rinse performance at TSL 3. Over 95 percent of currently sold front-loading CCW SKUs have efficiency ratings that meet or exceed this level. Hence, DOE estimated relatively small equipment and capital conversion costs for these washers.

At TSL 4, DOE estimated the impacts in INPV at TSL 4 to range from negative $7.8 million to negative $10.2 million, or a change in INPV of -12.73 percent to -16.57 percent. At this level, the industry cash flow decreases by approximately 206 percent, to -$4.1 million, compared to the base-case value of $3.8 million in the year leading up to the standards. As with TSL 3, the top-loading standard remains at max-tech at TSL 4, and the impacts previously stated for this equipment class remain. Currently, 77 percent of front-loading washers shipped do not meet TSL 4, resulting in multiple manufacturers having to redesign existing front-loading equipment to conform cost-effectively to the standard. The $8.4 million in equipment and capital conversion costs estimated for this TSL to redesign and retool for the front-loading standard, while not appearing substantial on a nominal basis, are significant for manufacturers due to low volumes of front-loading CCWs. Adjusting for shipment volumes, investing $8.4 million in front-loading CCWs is equivalent to investing over $18.5 million in top-loading CCWs. These investment costs are also high compared to the industry value of $29 million for front-loading CCWs. Consequently, it could be difficult for manufacturers to justify the investments necessary to reach TSL 4 for front-loading CCWs.

At TSL 5, DOE estimated the impacts in INPV to range from negative $20.4 million to negative $23.0 million, or a change in INPV of -33.09 percent to -37.30 percent. At this level, the industry cash flow decreases by approximately 371 percent, to -$10.3 million, compared to the base-case value of $3.8 million in the year leading up to the standards. The top-loading standard remains at max-tech at TSL 5. DOE estimates for TSL 5 that manufacturers would have to invest $24.4 million in front-loading CCWs in an industry valued at $29 million. It likely would be difficult for manufacturers to justify the investments necessary to reach max-tech for both top-loading and front-loading washers.

13-42REFERENCES

1 McKinsey & Company, Inc. Valuation: Measuring and Managing the Value of Companies , 3 rd Edition, Copeland, Koller, Murrin. New York: John Wiley & Sons, 2000.

2 U.S. Securities and Exchange Commission, Annual 10-K Reports , Various Years, Washington D.C., available online at: www.sec.gov

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3 Association of Home Appliance Manufacturers. AHAM 2005 Fact Book , 2005. Washington, DC.

4 “Table 2 – Quantity and Value of Shipments of Refrigeration, Air-Conditioning, and Warm Air Heating Equipment: 2005 and 2004.” 2000 - 2005 Current Industrial Reports (CIR). U.S. Census Bureau, July 2006.

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